Hong Kong's economy pegged to grow modestly at 3%

Recovery in US manufacturing to boost growth.

According to HSBC Global Research, despite its modest outlook for the economy, fears from global financial market volatility and Fed's QE tapering still persist. 

But given stabilization across the Eurozone and a revival in US manufacturing activity and consumer surveys, HSBC expects Hong Kong's retail sales to still post double digit growth rate in 2013. This will likely have a positive impact on GDP, which HSBC expects will grow at a modest 3.0% y-o-y this year.

Here's more:

Despite the slowdown in August numbers, Hong Kong households and businesses are still supporting the city's retail growth, with sales rising 13.6% y-o-y in value terms in 2013 so far compared with 9.9% y-o-y in 2012.

Even in sequential terms, the 2013 average so far is 2.8% 3m/3m sa compared with 1.8% in 2012.

However, there are underlying signs of caution - the slowdown has been more pronounced starting 3Q-2013 than in the previous two quarters. This could pose downside risk to 3Q-2013 GDP.

We expect retail sales growth keep up the steady growth in 4Q-2013. This will primarily hold as inflation becomes more stable (CPI-composite has averaged 4.3% y-o-y in 2013 so far) and employment conditions keep robust.

Although employers are not hiring at a very fast pace, as suggested in the August PMI, headcounts still stand solid.

Unemployment rate remained unchanged at 3.3% in the three months ending August compared to July. Simultaneously, nominal wage growth has also picked up and will support private consumption. Secondly, Mainland tourist visits continue to support Hong Kong's retail markets.

Tourist arrivals from China have kept pace at over 3 million in each month in 2013, barring only the month of March (which shows lagged effects from the Chinese New Year which fell in February this year).

Retail sales growth, one of the best proxies for GDP in Hong Kong moderated further in August. In sequential terms, a downward trend is now emerging, as sales particularly in 3Q-2013 slow down.

Despite the August easing however, local consumer sentiment is holding up to support consumption. We expect 3Q-2013 GDP to rise at a modest 3.1% y-o-y and the full year growth to average 3.0% y-o-y.